Reliable Dividend Payer Enbridge Keeps Chugging Upward

After a day in which the bellwethers' bellwether, Apple (AAPL), missed on both EPS and revenues, one has to worry that this could be the final straw for a market that has been threatening to fall. When you want to buy at a time like this, you want to look for search for reliability, safety, and yield. When you get all of these plus growth as you do with Enbridge (ENB), you know you have found a great stock. When you are likely to get a beat on earnings (see the last paragraph), you are even more assured. The 20+ year chart of ENB (below) shows just how reliable it has been.

(click to enlarge)

Since 2000, it has multiplied investors' money approximately eight times, and that is without even accounting for the dividend. It also pays a 2.79% dividend. Using 2.79% as the average interest, the company paid you roughly an additional 41% over that period. This is effectively equivalent to the stock having risen to $57.18. In other words, you would have multiplied your money approximately 11 times. Most people would be delighted with this return over 12.5 years.

Further ENB has been steady. It took a move down in the recent recession, but it quickly recovered even the relatively small losses it suffered. This is the kind of stock you want to own heading into a European recession and very possibly a new US recession. Pipeline companies are historically stable. Other companies want to move their oil to market no matter the economic conditions. With the US being a net importer of oil, it always wants to move all of its and Canada's oil. You can't find a much more inelastic demand picture than this one. Further ENB has the luxury of 10+ year contracts. Its prices and its sales will fluctuate very little in hard times. It will continue to produce great profits.

ENB will continue to grow. It recently completed the Seaway Pipeline reversal in partnership with Enterprise Products Partners LP (EPD). This now transports 150,000 bopd from Cushing OK to the Texas Coast. Beyond this it has a US Gulf Coast Access Initiative. This comprises three main parts. ENB and EPD will increase the existing Seaway Pipeline capacity from 150,000 bopd to 400,000 bopd by Q4 2012. ENB plans to twin the Seaway Pipeline by mid 2014 to roughly double the 400,000 bopd capacity. ENB also intends to increase the link from Chicago to Cushing, Oklahoma with the Flanagan South Pipeline project. This will have an initial capacity of 585,000 bopd (expandable to 800,000 bopd). ENB has many more smaller projects to expand or improve its current pipelines. It also has several proposed expansions by Enbridge Energy Partners (EEP) -- a partially owned subsidiary of ENB. EEP plans to expand the Lakehead System (as in Great Lakes) Lines 61 and 67 by mid-2014. EEP will also expand Line 62 between Flanagan, Illinois and the Terminal at Griffith, Indiana.

ENB has been working on the approval of the Northern Gateway pipeline project. This is a future project that will transport oil from Alberta to the British Columbia port of Kitimat. From there Canada will be able to ship its oil sands oil to China (and elsewhere). Most recently ENB has promised environmentalists $500 million more in safety improvements to the pipeline in an effort to get it approved. The pipeline planned was already one of the safest ever. Many think progress is being made.

As a long term plan, ENB intends to maintain a 10%+ CAGR through 2020. It should be able to grow its dividend as it does this. It has infrastructure which is strategically placed to move oil from the middle of the US and Canada to the Texas Gulf Coast, Chicago, Toledo, Montreal, Toronto, etc. It is ideally positioned to service many of the new unconventional shale development projects in the US and the oil sands projects in Canada. There does not seem to be any major fault in the company's infrastructure or its planning.

The only negative I see is that ENB's historical PE floats from 15 to 37. It is now at 35.60. This means it could experience a retracement in the normal course of events, especially if the US economy goes into recession. The good news is that the FPE is 21.68, and ENB's earnings estimates are stable (or perhaps growing a bit). Plus ENB reports earnings on Aug. 2, 2012. I expect a beat. ENB should get some extra money from its early opening of the Seaway Pipeline reversal project (see above). These results should lower ENB's PE a bit. This tells one that ENB can be bought with relative safety. It may retrace; but if you wait (and collect your dividend) you will eventually get good growth. At a time when the entire world economy is slowing, ENB may be one of the safer places to put your money. Consider also that ENB operates in the politically stable geopolitical areas of Canada and the US. You can't beat those for safety either. Averaging in is a good idea in the current economic environment.

NOTE: Some of the fiscal financial data above is from Yahoo Finance.

Good Luck Trading.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ENB over the next 72 hours.

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